The latest developments in the European economy have shown that it is high time to strengthen economic policy coordination in Europe. The interdependence of our economies is higher than ever, in particular inside the euro area.

Although the first ten years of the euro have been a success, we must acknowledge shortcomings: (1) Peer pressure lacked teeth. (2) Good times were not used to reduce public debt. (3) Macroeconomic imbalances were neglected.

The backlash of these shortcomings has been all more severe: twenty years of fiscal consolidation have been wiped out in two years, and the financial stability of the Euro area as a whole has been put at risk, as we have seen recently in the hardest of ways.

The Lisbon Treaty provides plenty of room for progress through a better and full use of the existing economic policy instruments, and through revised and new secondary legislation, where needed. In particular, article 136 on economic policy coordination enables us to develop new tools for reinforced economic governance in euro area.

Today's communication is built on three blocks:

First, we must reinforce both the preventive and the corrective arms of the SGP. The Pact is a solid set of rules, but it has suffered from a chronic failure to comply with rules and principles.

The essential cornerstone of reinforced economic governance is to coordinate fiscal policy in advance, in order toensure that national budgets are consistent with the European dimension, so that they don't put at risk the stability of the other member states. This can be done in the framework of a European economic semester.

The Excessive Deficit Procedure will remain the core of the implementation of the Pact. But we need to sharpen our teeth. We should speed-up the steps of the EDP and make more rigorous and conditional use of EU expenditure to ensure better compliance with the rules of the Stability and Growth Pact. This will require changes in secondary legislation.

We need to apply rigorously the current Cohesion Fund regulation when dealing with Member States in repeated breach of the Pact.

Public debt was not sufficiently reduced during the good economic times over the past decade due to an insufficient commitment to fiscal consolidation. The debt criterion of the EDP should be properly implemented at last.

Finally, we are proposing a robust framework for crisis management for the Euro area Member States. In the medium-to-long term, we should develop a last resort mechanism of financial assistance, subject to strict conditionality, in the form of loans, with interest rates that makes it unattractive enough to be tempted to fall into this system. We will draw the lessons by the recent experience.

A final word on the Convergence reports and on Estonia. Estonia has achieved a high degree of sustainable economic convergence and is ready to adopt the euro on 1 January 2011. We commend Estonia for its long-standing commitment to prudent policies. To ensure that the adoption of the euro is a success, Estonia must pursue its efforts to maintain a prudent fiscal policy stance. Estonia needs also to remain vigilant and react early and decisively in case signs of build-up of macroeconomic imbalances and/or losses of competitiveness were to appear. It must now speed up its practical preparations to ensure that the changeover takes place smoothly.

The assessment and our proposal is also a strong signal about the euro area and to the EU more broadly. It underpins the role of the euro as medium-term policy anchor and confirms that sustained policy efforts and a long-standing record of stability-oriented policies generate concrete results.

All in all, today's Commission proposals will lead to a substantial deepening and prudent widening of Economic and Monetary Union.